Cable Open Access and Direct Access to INTELSAT

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Volume 53 Issue 1 Article 4
2002
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Kenneth Katkin
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Kenneth Katkin, Cable Open Access and Direct Access to INTELSAT, 53 Case W. Rsrv. L. Rev. 77 (2002)
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CABLE OPEN ACCESS AND DIRECT
ACCESS TO INTELSAT
Kenneth Katkint
ABSTRACT
The FCC is currently resolving whether cable television com-
panies that provide high-speed Internet access to residential
consumers should be required to furnish cable transmission
capacity to unaffiliated Internet Service Providers. To resolve this
controversy, the FCC has expressed a desire "to develop an analytical
approach that is, to the extent possible, consistent across multiple
platforms." The FCC's comment reflects the specific fact that local
telephone companies which provide high-speed Internet access to
residential users through Digital Subscriber Lines (DSL) currently are
required to furnish transmission capacity to unaffiliated Internet
Service Providers. However, the same comment can also be read
more broadly, as suggesting that in a world of increasing
technological convergence and increasing intermodal competition,
a more universally consistent analytical paradigm is needed to resolve
the many analogous disputes over competitive access to proprietary
bottleneck facilities that are now arising in a broad range of
communications contexts.
The issues raised by today's dispute over "cable open access"
are substantially analogous to those raised in past disputes over
"direct access" to the INTELSAT satellite system. Those disputes
were resolved in 1999, when the FCC authorized unaffiliated com-
petitors to obtain direct access to INTELSAT, on the grounds that
such a policy would: (1) encourage the widest possible deploy-
ment of communications facilities; (2) encourage competition
among providers of communications service; and (3) benefit con-
sumers by putting downward pressure on prices and upward pres-
sure on service quality and offerings. The same claims have now
been raised by proponents of cable open access. Without excep-
tion, these claims enjoy stronger factual support with respect to
cable open access today than they enjoyed with respect to INTEL-
Assistant Professor of Law, Salmon P. Chase College of Law, Northern Kentucky
University. A.B., 1987, Princeton University; J.D., 1996, Northwestern University. E-mail:
[email protected]. For their helpful comments and suggestions on earlier versions of this paper,
the author wishes to thank participants at The 29th Research Conference on Communication,
Information and Internet Policy (TPRC2001) in Washington, DC, and also at faculty colloquia
at the University of Kentucky College of Law and the Salmon P. Chase College of Law, North-
ern Kentucky University. Special thanks are due to Phil Weiser, Edward M. Opton, Jr., Rose-
mary Harold, Paul Salamanca, Stuart Benjamin, Lawrence W. Secrest III, Keith Fagan, and
Linda Dynan. Any remaining errors are the fault of the author.
CASE WESTERN RESERVE LAW REVIEW [Vol. 53:77
SAT direct access in 1999. Accordingly, implementation of cable
open access today would be analytically consistent with the im-
plementation of direct access to INTELSAT in 1999. Conversely,
an FCC decision not to implement cable open access would be
analytically inconsistent (indeed, irreconcilable) with its decision
to impose INTELSAT direct access in 1999.
TABLE OF CONTENTS
Introduction and Summary ................................................... 79
I. Cable TV and INTELSAT Satellites: The Monopoly Years 83
A. The Development of Cable Television as a "Natural
M onopoly" ................................................................................ 85
B. The Development of the INTELSAT Satellite System as a
"Natural M onopoly" ................................................................ 87
C. The Regulatory Responses To "Natural Monopoly" in the
International Satellite Telecommunications and Cable Television
Industries ................................................................................... 9 1
II. The Rise of Competition in the Cable Television and
International Satellite Telecommunications Industries .................. 97
A. The Introduction of Competition Against Incumbent Cable
Television System Operators ................................................... 97
B. The Introduction of Competition Against INTELSAT ..... 99
III. The Introduction of Residential High-Speed Internet Access
.......................................................0. 4.................................................
IV. Two Controversies Over Access ....................................... 110
A. The "INTELSAT Direct Access" Debate ....................... 111
B. The Cable "Open Access" Debate .................................. 119
V. Cable Open Access vs. Direct Access To INTELSAT in
Com parative Perspective ................................................................. 125
A. Encouraging Deployment of Facilities ........................... 126
B. Encouraging Competition Among Service Providers ..... 132
C. Maintaining Regulatory Parity Among Technologies That
Provide the Same (or Fungible) Services .................................... 138
C onclusion ............................................................................... 14 1
20021 CABLE OPEN ACCESS
INTRODUCTION AND SUMMARY
A controversy erupted almost as soon as high-speed Internet
access became available to residential users via cable modem in
1998. Should cable system operators be required to transmit the
signals of their competitors' unaffiliated Internet Service Providers
(ISPs)?' Proponents of such a regulatory requirement refer to it as
"cable open access," and assert that it is essential to create and
maintain competition in the residential ISP market.2 Opponents, in
contrast, insist that such "forced access" would be unfair to in-
cumbent cable operators and would discourage future investment
in the continued deployment of "last mile" cable facilities that
connect residential users to the Internet.3
See Jim Chen, The Authority To Regulate Broadband Internet Access Over Cable, 16
BERKELEY TECH. L.J. 677, 677 (2001) ("The regulation of cable-based platforms for high-speed
access to the Internet has become the most controversial subject in communications law."); Cf
James B. Speta, The Vertical Dimension of Cable Open Access, 71 U. COLO. L. REV. 975, 980
(2000) (the "cable open access" issue "seems to have been placed into public debate, if not to
have been first born, upon the announcement of the AT&TITCI merger [in 1998]").
2 See, e.g., Mark A. Lemley & Lawrence Lessig, The End of End-To-End: Preservingt he
Architecture of the Internet in the Broadband Era, 48 UCLA L. REV. 925 (2001); Mark A.
Lemley & Lawrence Lessig, Open Access to Cable Modems, 22 WHITTIER L. REV. 3 (2000); see
also Steven A. Augustino, The Cable Open Access Debate: The Case for a Wholesale Market, 8
GEO. MASON L. REV. 653, 655 (2000) (arguing that not just ISPs, but also telecommunications
service providers, should enjoy a right of open access to residential cable transmission capac-
ity); Jerry A. Hausman, J. Gregory Sidak, & Hal J. Singer, Residential Demand For Broadband
Telecommunications and ConsumerA ccess to Unaffiliated Internet Content Providers, 18 YALE
J. ON REG. 129, 170-71 (2001) ("To remedy the risks of conduit and content discrimination,
regulators should subject any pending mergers to an open access provision."); Marcus Maher,
Comment, Cable Internet Unbundling: Local Leadership In the Deployment of High-Speed
Access, 52 FED. COMM. L.J. 211, 221-23 (1999). See generally In re Notice of Inquiry Concern-
ing High-Speed Access to Intemet Over Cable and Other Facilities, Notice of Inquiry, 15 F.C.C.R.
19287, 27 (2000) [hereinafter Inquiry Concerning High Speed Access to the Internet] (defining
"cable open access" and summarizing arguments for and against it).
3 See, e.g., Julian Epstein, A Lite Touch On Broadband:A chieving the Optimal Regula-
tory Efficiency in the Internet Broadband Market, 38 HARV. J. ON LEGIS. 37 (2001); John E.
Lopatka & William H. Page, Internet Regulation and Consumer Welfare: Innovation, Specula-
tion, and Cable Bundling, 52 HASTINGS L.J. 891 (2001); James B. Speta, Handicapping the
Race for the Last Mile?: A Critiqueo f Open Access Rules for Broadband Platforms, 17 YALE J.
ON REG. 39 (2000). The phrase "last mile" is a term of art that refers to "the communications
links and related hardware that connect the premises with the rest of a telecommunications
network, most notably between the home or small business and the set of interlinked data net-
works that make up the Internet." COMMrrrEE ON BROADBAND LAST MILE TECHNOLOGY,
COMPUTER SCIENCE AND TELECOMMUNICATIONS BOARD, NATIONAL RESEARCH COUNCIL,
BROADBAND: BRINGING HOME THE BITS 5 (2002). See also id. at 45 ("The link between the
[Internet] point of presence and the customer-using either existing communications infrastruc-
ture or new facilities-is frequently referred to as the 'last mile' because it represents a bottle-
neck that constrains the benefits the consumer gets from the rest of a network, which is literally
at some distance."). In the context of residential cable modem service, the "last mile" facility is
the hybrid fiber-coaxial ("HFC") cable that delivers access to the Internet into the user's home.
In the same context, a "facilities-based provider" is a provider that uses its own proprietary "last
mile" facilities to deliver high-speed Internet access to users.
CASE WESTERN RESERVE LAW REVIEW [Vol. 53:77
Initially, much of the "cable open access" controversy re-
volved around the threshold question of whether existing law al-
ready required (or prohibited) such access.4 On March 15, 2002,
however, the Federal Communications Commission (FCC) sub-
stantially resolved this threshold question by formally classifying
the provision of high-speed Internet access to residential users via
cable modems as an "information service," and not as a "cable ser-
vice" or a "telecommunications service."5 By classifying cable
modem services as "information services," the FCC maximized its
own continuing discretion to adopt-or not to adopt-"cable open
access" requirements.6 To facilitate its exercise of this discretion,
the FCC simultaneously launched a new rulemaking proceeding to
consider the merits of "whether it is necessary or appropriate at
this time to require that cable operators provide unaffiliated ISPs
with the right to access cable modem service customers directly...*7
Unlike cable operators, incumbent wireline telephone local
exchange carriers ("LECs") who provide residential high-speed
4 See e.g., Chen, supra note 1, at 704, 712 (concluding that "[SItate and local authorities
[are barred] from demanding open access," but that "the FCC may issue an open access rule for
cable broadband platforms under any of several general grants of rulemaking power."); see also
Barbara S. Esbin & Gary S. Lutzker, Poles, Holes and Cable Open Access: Where the Global
Information Superhighway Meets the Local Right-of-Way, 10 CoMMLAW CONSPECTUS 23
(2001) (discussing FCC's authority to impose cable open access requirements); Lawrence A.
Sullivan, Is Competition Policy Possible in High Tech Markets?: An Inquiry Into Antitrust,
Intellectual Property, and BroadbandR egulation as Applied to "The New Economy," 52 CASE
W. RES. L. REV. 41, 82-86 (2001) (same); Christopher E. Duffy, Note, The Statutory Classifica-
tion of Cable-Delivered Internet Service, 100 COLUM. L. REV. 1251, 1262 (2000) (explaining
that definitional issues in the open access controversy remain unsettled); cf Raymond Shih Ray
Ku, Open Internet Access and Freedom of Speech: A First Amendment Catch-22, 75 TUL. L.
REV. 87 (2000) (concluding that mandatory open access requirements would be unconstitu-
tional).
5 See In re Inquiry Concerning High-Speed Access to the Internet Over Cable and Other
Facilities, Declaratory Ruling and Notice of Proposed Rulemaking, 17 F.C.C.R. 4798, 7
(2002) [hereinafter Cable Modem Order] (holding that "cable modem service, as it is currently
offered, is properly classified as an interstate information service, not as a cable service, and [it
involves] ... no separate offering of telecommunications service."), petitionsf or review pending
sub nom., EarthLink, Inc. v. FCC, No. 02-1097 (D.C. Cir. filed Mar. 26, 2002).
6 See infra Part IV.B (discussing regulatory consequences of classification of cable mo-
dem services as "information services"). Of course, the FCC's classification of cable modem
services as "information services" cannot provide the agency with authority to implement cable
open access if open access is unconstitutional, as some have argued. Cf, e.g., Ku, supra note 4,
at 93 (asserting that mandatory open access requirements would violate the First Amendment);
Stuart Minor Benjamin, Proactive Legislation and the FirstA mendment, 99 MICH. L. REv. 281,
295-99 & n.64 (2000) (tentatively endorsing Ku's arguments). No court or agency has yet
addressed such constitutional arguments, which are beyond the scope of this paper..
7 Cable Modem Order, supra note 5, at 72. In this new rulemaking proceeding, the
Commission continued to solicit commentary concerning the Commission's legal authority to
implement "cable open access." See id. at 117 2, 79-82 (soliciting further comment on the scope
of the FCC's statutory authority to implement direct access and on possible constitutional
limitations on the FCC's authority to implement direct access). The Commission also made
clear, however, that it is now ready to consider the substantive merits of implementing such a
policy. See id. at 73 (setting forth substantive considerations which the FCC seeks comment
on).
2002] CABLE OPENACCESS
Internet services via "Digital Subscriber Line" ("DSL") are cur-
rently subject to "unbundling" and "interconnection" obligations
which require these LECs to transmit the signals of unaffiliated
ISPs over DSL lines.8 Because residential high-speed cable mo-
dem service and residential high-speed DSL service can appear
fungible with one another from the consumer perspective, com-
mentators have frequently drawn analogies (or distinctions) be-
tween the two services in arguing for (or against) the adoption of
"cable open access" requirements.9 Cognizant of such analogies,
the FCC has now resolved to decide whether cable and DSL Inter-
net access should continue to be subject to substantially dissimilar
regulatory regimes.10
When it framed this issue, the Commission stated that it will
"strive to develop an analytical approach that is, to the extent pos-
sible, consistent across multiple platforms."' 1 The Commission has
thus identified regulatory parity between cable modem and DSL ser-
vice as a desirable policy objective, albeit one that might not necessar-
ily trump other policy objectives or statutory constraints. The Com-
mission's statement may also reflect a broader desire to establish a
8 47 U.S.C. § 251(c) (2000). See infra notes 47-57 and accompanying text; see also
Inquiry Concerning High Speed Access to the Internet, supra note 2, at 43 (as common carriers,
most wireline LECs "must allow ISPs to purchase basic transmission services on a nondiscrimi-
natory basis. As a result, end users are typically given a choice of ISPs, which could be ac-
cessed over the telephone network. Cable operators .. .do not currently operate pursuant to
rules requiring end user ISP choice."). For a review of the historical roots of the divergence
between the regulatory paradigms now applied to DSL and cable modem service, see Rosemary C.
Harold, Cable Open Access: Exorcising the Ghosts of "Legacy" Regulation, 28 N. KY. L. REV.
721 (2001).
9 See e.g., Comments of SBC Corp. and BellSouth Corp. filed in In re Notice of Inquiry
Concerning High-Speed Access to the Internet Over Cable and Other Facilities, GEN Docket
No. 00-185 (filed Dec. 1, 2000) available at http://www.fcc.gov/e-file/ (arguing that because
cable modems and DSL lines provide fungible high-speed Internet access services to residential
users, the two technologies should be subject to the same regulatory requirements); cf. Speta,
supra note 3, at 42 ("On one end of the spectrum, incumbent local telephone companies are
currently subject not only to a significant remnant of traditional public utility regulation, but
also the new interconnection, unbundling, and cooperation duties imposed by the 1996 [Tele-
communications] Act .... At the other end, access providers that do not use any of the existing
telephone plant (such as ...c able television companies ... ) may not be required even to inter-
connect their facilities with those of other networks.").
10 See Cable Modem Order, supra note 5, at 6 ("[lin this proceeding, as well as in a
related proceeding concerning broadband access to the Internet over domestic wireline facilities,
we seek to create a rational framework for the regulation of competing services that are pro-
vided via different technologies and network architectures. We recognize that residential high-
speed access to the Internet is evolving over multiple electronic platforms, including wireline,
cable, terrestrial wireless and satellite.") (footnote omitted). The "related proceeding" referred to
in the Cable Modem Order & NPRM proposes to classify high-speed residential DSL service as
an "information service" subject to regulatory requirements substantially similar to cable mo-
dem service. See In re Appropriate Framework for Broadband Access to the Internet Over
Wireline Facilities, Notice of Proposed Rulemaking, 17 F.C.C.R. 3019 (2002), [hereinafter
Wireline BroadbandN PRM] reprinted in 67 Fed. Reg. 9232 (Feb. 28, 2002).
1 Cable Modem Order, supra note 5, at [7 3.
CASE WESTERN RESERVE LAW REVIEW [Vol. 53:77
more consistent analytical approach to resolving the disputes over
competitive access to proprietary bottleneck facilities, which recur in a
broad range of communications contexts. If so, then the FCC may wish
to consider harmonizing its analytical approach to the "cable open ac-
cess" debate not only with its analytical approach to DSL access re-
quirements, but also with the approach that it recently employed to re-
solve another longstanding dispute that also concerned competi-
tors' demands for a right of unbundled access to separate compo-
nents of proprietary communications facilities.
Specifically, in 1999, the FCC adopted a rule entitling unaf-
filiated international telecommunications carriers and users to ob-
tain "direct access" at wholesale rates to the raw satellite transmis-
sion capacity of the INTELSAT satellite system, without being
required to purchase any additional "bundled" communications
services from INTELSAT's U.S. affiliate, COMSAT.12 Ina uthor-
izing "direct access" to INTELSAT, the FCC confronted and re-
solved several issues of law and policy that are analytically analo-
gous to those raised by the current "cable open access" dispute.
The Commission's decision to implement direct access to INTEL-
SAT was predicated on its findings that adopting such a rule
would: (1) encourage the widest possible deployment of commu-
nications facilities; (2) encourage competition among providers of
communications service; (3) maintain regulatory neutrality among
competing technologies that provide similar services; and (4) re-
move regulation where the public interest is served by that ac-
tion.13 These are substantially the same policy benefits that propo-
nents claim would flow from a rule requiring "cable open ac-
cess."1 4 Accordingly, this Paper contends that the FCC's stated goal
12 See In re Direct Access to the INTELSAT System, Report and Order, 14 F.C.C.R.
15703 (1999) [hereinafter 1999 Direct Access Order]. INTELSAT is "a 143-member intergov-
ernmental organization created by international agreement." In re Applications of INTELSAT
L.L.C., Memorandum Opinion Order and Authorization, 15 F.C.C.R. 15460, 9[5 (2000) recon.
denied, 15 F.C.C.R. 28234 (2000) (citing Agreement Relating to the International Telecommu-
nications Satellite Organization "INTELSAT," done Feb. 12, 1973, 23 U.S.T. 3813 [hereinafter
INTELSAT Agreement] and Operating Agreement Relating to the International Telecommuni-
cations Satellite Organization, "INTELSAT," done Aug. 20, 1971, 23 U.S.T. 4091 [hereinafter
INTELSAT Operating Agreement]). Until 2001, the INTELSAT treaty organization owned and
operated a global fleet of geostationary commercial communications satellites over which much
of the world's international telephone, video, data, Internet, and other communications were
transmitted. Id. at q 5-7. On July 18, 2001, INTELSAT's business operations were privatized
"into a corporate holding company structure." In re INTELSAT L.L.C., Memorandum Opinion
and Order, 16 F.C.C.R. 18185, 1 (2001). Today, INTELSAT's former satellite fleet is oper-
ated by Intelsat L.L.C., a Delaware corporation that "is a subsidiary within that privatized struc-
ture and the U.S. licensee for operation of existing and planned satellites in the C-band and Ku-
band." Id. For more on INTELSAT, see infra Parts 1.B, 1.B, and IV.A.
" See infra Part V.
14 See id.
20021 CABLE OPEN ACCESS
of harmonization of analytical approach militates in favor of
implementing "cable open access" or, alternatively, possibly
repealing the rule requiring direct access to INTELSAT.15
Part I of this Article describes the parallel development in the
1960s of cable television and international satellite telecommuni-
cations, each under conditions of regulated "natural monopoly."
Part II describes the onset in the 1980s of competition against the
incumbents in both industries and the regulatory readjustments that
fostered or accommodated such competition. Part III describes the
rise of residential Internet access and the separate regulatory
frameworks that characterize the low-speed and high-speed resi-
dential ISP markets. Part IV recounts the issues raised in the
separate debates over "cable open access" and "INTELSAT direct
access." On an issue-by-issue basis, Part V compares the merits of
"cable open access" with those of "INTELSAT direct access."
This Article concludes that without exception the criteria underly-
ing the FCC's decision to implement direct access to INTELSAT
in 1999 provide at least as strong a basis for implementing cable
open access today. Accordingly, implementation of cable open
access would be analytically consistent with the Commission's
stated reasons for implementing direct access to INTELSAT.
Conversely, an FCC decision not to implement cable open access
would be analytically inconsistent (indeed, irreconcilable) with the
INTELSAT direct access decision.
I. CABLE TV AND INTELSAT SATELLITES: THE MONOPOLY
YEARS
In the 1960s, America witnessed the rise of two new means of
communicating information: cable television and geostationary
international telecommunications satellites ("GEOs" or "satel-
lites").16 In certain respects, the business and legal arrangements
15 At first glance, the FCC might appear presently to lack authority to repeal its rule re-
quiring direct access to INTELSAT. In 1999, the FCC implemented direct access to INTEL-
SAT in a rulemaking proceeding. 1999 Direct Access Order, supra note 12. Six months later,
Congress in the ORBIT Act of 2000 codified the FCC's direct access rule, seemingly immuniz-
ing the rule against FCC repeal. See 47 U.S.C.A. § 765(a) (2001) (enacted Mar. 17, 2000). In
July 2001, however, as discussed supra note 12, INTELSAT's satellites were transferred to
Intelsat L.L.C., a Delaware corporation defined in the ORBIT Act as a "successor entity."
Compare 47 U.S.C. § 769(a)(1) (2000) (defining "INTELSAT") with 47 U.S.C. § 769(a)(7)
(2000) (defining "successor entity"). Because the statutory "direct access" requirement set forth
at 47 U.S.C. § 765(a) applies only to the intergovernmental treaty organization "INTELSAT"'
and not to any private "successor entit[ies]," the ORBIT statute no longer prohibits the FCC
from repealing its direct access rule.
16 For a collection of essays on the history of cable television in the United States, see
MILESTONES: A 50-YEAR CHRONICLE OF CABLE TELEVISION (Priscilla B. Walker & Matt
Stump eds., 3d ed. 1998). For a history of international telecommunications satellites, see
CASE WESTERN RESERVE LAW REVIEW [Vol. 53:77
that developed around these new communications technologies
were (and remain) quite different from one another. Cable televi-
sion system operators, for example, directly serve the residential
retail consumers who are cable's end users. International GEOs,
in contrast, do not serve retail consumers directly, but instead pro-
vide transmission capacity to the U.S. telecommunications carriers
and other users (such as television networks and ISPs) who use
that capacity to provide international telephony, data transmission,
or video services to the public. Moreover, although subject to lim-
ited federal regulation,17 cable television has always been regu-
lated primarily by the state and local authorities that issue and re-
new cable franchises.' 8 GEOs, in contrast, are located 22,300
miles above the equator-beyond the regulatory reach of any U.S.
state or local authority. Accordingly, GEOs are regulated in some
respects by the federal government' 9 and in other respects by in-
ternational treaty organizations such as the International Tele-
communications Union (ITU), an agency of the United Nations.2°
In significant respects, however, the economics of cable tele-
vision resembles that of international satellite communications.
Both industries-like local telephony-operate under conditions
where the fixed cost of entry (constructing facilities) is unusually
high in comparison with the low marginal cost of providing addi-
tional service once a facility has been built.2' Because of the eco-
CHARLES H. KENNEDY & M. VERONICA PASTOR, AN INTRODUCTION TO INTERNATIONAL
TELECOMMUNICATIONS LAW 50-97 (1996).
17 See generally 47 U.S.C. §§ 521-561 (2000) (setting forth federal laws governing cable
television service).
'8 See, e.g., Community Communications Co., Inc. v. City of Boulder, 660 F.2d 1370,
1377-78 (10th Cir. 1981) (footnotes and citations omitted):
[A] cable operator must lay the means of his medium underground or
string it across poles in order to deliver his message. Obviously, this
manner of using the public domain entails significant disruption, espe-
cially to streets, alleys, and other public ways. Some form of permission
from the [local] government must, by necessity, precede such disruptive
use of the public domain. We do not see how it could be otherwise. A
city needs control over the number of times its citizens must bear the in-
convenience of having its streets dug up and the best times for it to oc-
cur.
19 See, e.g., 47 U.S.C. §§ 701-769 (2000) (setting forth federal statutes applicable to inter-
national telecommunications satellites that serve the United States); 47 C.F.R. pt. 25 (2001)
(setting forth FCC regulations applicable to such satellites).
20 See KENNEDY & PASTOR, supra note 16, at 52-58.
21 See, e.g., Omega Satellite Products Co. v. City of Indianapolis, 694 F.2d 119, 126 (7th
Cir. 1982) (Posner, J.):
The cost of the cable grid appears to be the biggest cost of a cable
television system and to be largely invariant to the number of subscribers
the system has.... [O]nce the grid is in place-once every major street
has a cable running above or below it that can be hooked up to the indi-
vidual residences along the street-the cost of adding another subscriber
probably is small. If so, the average cost of cable television would be
2002] CABLE OPEN ACCESS
nomic disincentive to subsequent entry that normally obtains under
such conditions, both the international satellite telecommunica-
tions industry and the cable television industry were long believed
to be "natural monopolies. 2 This economic theory of "natural
monopoly" was reflected in the regulatory regimes that evolved
around the two industries: in both cases, monopolies were origi-
nally protected, while rates were regulated.
A. The Development of Cable Television as a "Natural Monopoly"
Historically, local government regulation of cable television
systems "has been premised upon cable companies' need to use
public streets and rights of way to lay or string their cable. 23
Specifically, local governments have analogized the "sheer limit
on the number of cables that can be strung on existing telephone
poles" to the "spectrum scarcity" that has served as a justification
for otherwise anomalous federal regulation of the use of the broad-
cast spectrum.24 To forestall the negative externalities that might
result if too many cables were laid, local governments have com-
monly restricted entry into the local cable television market to
those entities awarded licenses by local cable franchising authori-
ties.25
bly is small. If so, the average cost of cable television would be mini-
mized by having a single company in any given geographical area; for if
there is more than one company and therefore more than one grid, the
cost of each grid will be spread over a smaller number of subscribers,
and the average cost per subscriber, and hence price, will be higher.
See also infra Part I.B (discussing the reasons why Congress in the early 1960s believed that an
international satellite telecommunications system would constitute a natural monopoly).
22 See, e.g., Omega Satellite Products Co., 694 F.2d at 126 (presenting economic argu-
ment for why cable television service has been thought to be a "natural monopoly"); In re Regu-
latory Policies and International Telecommunications, Notice of Inquiry and ProposedR ulemak-
ing, 2 F.C.C.R. 1022, 18 (1987) (surveying reasons why international telecommunications
service was historically thought to be a "natural monopoly"), modified in other respects, 4
F.C.C.R. 7387 (1988), and modified on further recon. in other respects, 7 F.C.C.R. 1715 (1992).
In economic theory, a "natural monopoly" is defined as a firm that "can exist with decreasing
returns if any specified required rate of output can be supplied most economically by a single
firm or single system." Thomas Hazlett, The Curious Evolution ofN atural Monopoly Theory, in
UNNATURAL MONOPOLIES 1, 15 (Robert W. Poole, Jr. ed. 1985). Accord WILLIAM W.
SHARKEY, THE THEORY OF NATURAL MONOPOLY 4 (1982); see also MCGRAW-HILL DICTION-
ARY OF MODERN ECONOMICS 394 (2d ed. 1973) (defining "natural monopoly" as "a natural
condition that makes the optimum size of the firm so large in relation to the market that there is
room for only one firm").
23 Community Communications Co. v. City of Boulder, 660 F.2d 1370, 1374 (10th Cir.
1981).
24 Id. at 1378; cf Red Lion Broadcasing Co. v. FCC, 395 U.S. 367 (1968) (holding that
but for "spectrum scarcity," the existing system of broadcast licensing under the Communica-
tions Act of 1934 might violate the First Amendment).
25 Community Communications Co., 660 F.2d. at 1374 (citing James A. Albert, The Fed-
eral and Local Regulation of Cable Television, 48 U. COLO. L. REV. 501,508-13 (1977)).